Post-Funding Compliance Four Things Startups Should Not Neglect

Raising capital is a milestone achievement for startups, usually representing recognition, expansion, and possibility. But what happens next is no less important—compliance with post-funding requirements.

Ignoring these steps could result in legal issues, fines, and even investor discontent. Below are four compliance steps each startup should not neglect after raising investment.

In the first place, the KYC (Know Your Customer) of every investor should be done. It entails gathering and authenticating identification proofs, PAN cards (for Indian investors), and address proofs.

 KYC is a money laundering law requirement under the Prevention of Money Laundering Act and is the pillar of responsible investor onboarding. Non-compliance can trigger flags during audits or due diligence processes.

Considerations to note

Second, if the investment involves foreign investors, submitting Form FC-GPR (Foreign Currency-Gross Provisional Return) is compulsory. This form should be submitted to the Reserve Bank of India within 30 days of share allotment date.

 It records the foreign investment details and is a critical compliance under FEMA (Foreign Exchange Management Act). It covers supporting documents like the board resolution, valuation certificate, and KYC of the foreign investor's bank.

Third, FEMA reporting via the FIRMS portal is imperative. According to the RBI, India received more than USD 71 billion of FDI inflows in FY22-23, evidencing a robust investor interest in Indian startups (Source: DPIIT Annual Report 2023). 

Finishing up

Timely and correct FEMA reporting guarantees that such capital is recognized and accounted for as per Indian foreign exchange regulations.

Finally, companies have to make necessary filings with the Ministry of Corporate Affairs. This involves making filing Form PAS-3 to register the allotment of shares and making an update in the company's statutory registers.

 These filings ensure fairness and maintain corporate governance practices.

Compliance isn't as fancy as a funding press release, but it is a non-negotiable imperative. Taking these steps seriously avoids not only legal consequences but also earns credibility among existing and potential investors. 

For startups that need to scale, a strong foundation of compliance can demonstrate maturity and worthiness of trust in the competitive funding environment.